Reynolds v. Credit Solutions, Inc.

Decision Date26 February 2008
Docket NumberCivil Action No. 07-AR-1516-S.
Citation541 F.Supp.2d 1248
PartiesThomas E. REYNOLDS, as Trustee of the Bankruptcy Estate of Elizabeth Picard, Plaintiff, v. CREDIT SOLUTIONS, INC., Defendant.
CourtU.S. District Court — Northern District of Alabama

Michael H. Johnson, Law Office of Michael H. Johnson LLC, Frank M. Young, III, Michael C. Skotnicki, Haskell Slaughter Young & Rediker, Birmingham, AL, Robert N. Barber, II, The Barber Law Group, Homewood, AL, for Thomas E. Reynolds.

Nicole Mapp Hardee, James A. Harris, III, Harris & Harris LLP, Birmingham, AL, for Credit Solutions, Inc.


WILLIAM M. ACKER, Jr., District Judge.

Before the court is the motion of defendant, Credit Solutions, Inc. ("Credit Solutions"), to dismiss this action or, in the alternative, to compel arbitration. Elizabeth Picard ("Picard") was the originally named plaintiff. However, Thomas E. Reynolds ("Reynolds"), the trustee of Picard's bankruptcy estate, was later substituted as the proper party plaintiff.1 On December 4, 2007, the court conducted an evidentiary hearing on the issue of whether Picard electronically signed a contract containing a valid arbitration clause with Credit Solutions. After careful consideration of the evidence admitted at the evidentiary hearing, the parties' briefs, and the relevant law, the court finds, for the reasons that follow, that Credit Solutions's motion is due to be denied.

Factual and Procedural History

On December 13, 2006, Picard placed a phone call to Credit Solutions to inquire about its services. Credit Solutions is a debt settlement company that negotiates with unsecured creditors on behalf of its customers to lower the customers' debt loads and monthly payments. Credit Solutions charges as its fee 15% of the total amount of debt to be reduced. Picard had amassed a considerable amount of credit card debt. She researched different companies that offered services similar to those provided by Credit Solutions. She says that she decided to call Credit Solutions after making inquiries about the company with the Better Business Bureau and learning that it was featured on a national television network.2 She also testified that one of her friends who is an attorney advised her to call Credit Solutions.

Picard had an approximately 45-minute phone conversation with Martin Englert ("Englert"), one of Credit Solutions's debt consultants. After Englert explained the nature of the Credit Solutions program, Picard gave Englert the names and numbers of the high-interest credit cards that she needed help paying off, along with the balance due and interest rate on each card. After indicating a desire to enroll in the program, Englert told Picard that she could enroll via the internet and sent her an e-mail containing a username and password that would allow her to log-in to the Credit Solutions website. Picard initially denied ever having gone through this enrollment process; however, an audio recording of her phone conversation with Englert on December 13, 2006, played at the evidentiary hearing, revealed that Picard did, in fact, complete Credit Solutions's internet-based enrollment procedure.

Once Picard accessed the Credit Solutions website on her computer, she used the temporary username and password supplied by Englert to log-in to the electronic enrollment process. Next, at Englert's direction, she changed her username and password to something of her own choosing. Then, she viewed on her screen a document titled "agreement to do business electronically" and, in accordance with Englert's verbal prompts, clicked the "yes — I consent" icon at the bottom of the page. After agreeing in this fashion to do business electronically, Picard viewed a page that required her to confirm that Englert had entered her personal information correctly and to enter some additional information. Then, she was required to retype the account numbers and balances of the credit cards that she wished to include in the settlement program and to input her payment information, including her bank account number and routing number.

After she entered all of the required information, Picard was shown a page that said "please wait for your documents to be electronically signed." Next, an 8-page document popped-up on the screen in Adobe Acrobat format. A warning to "read through this document carefully" appeared at the top of the screen. Once the agreement appeared on Picard's computer screen, the following exchange took place between Picard and Englert:

Englert: Now, what you should see is a scroll bar. You're going to take that scroll bar and go slowly towards the bottom until you get page 7 of 8. What you're looking for is a black "X" with a little yellow box next to that that says "click here to sign." You move your mouse over it and click it once. And then give it a second, and it will go ahead and complete it for you.

Picard: In just click on it (inaudible).

Englert: Yeah

Picard: Okay. Okay. Now what do I do?

Def.'s Ex. 4 at 31. Credit Solutions's electronic records indicate that 30 seconds elapsed between the agreement's appearance on Picard's screen and her clicking the "click here to sign" box:. Def.'s Ex. 6. After electronically signing the document that contained the terms of the agreement between the parties, known as the "customer enrollment package," a link to a document called a "limited power of attorney" appeared. Englert told Picard to open the document, print it off, sign it at the bottom, and fax it back to him at Credit Solutions. Picard, thereupon, faxed the limited power of attorney to Credit Solutions and used the fax cover sheet as a scratch pad to write down the various debt reduction amounts that Englert had discussed and, according to Picard, promised. According to Cody Wray, Credit Solutions's IT director, the company needed a hard copy of the limited power of attorney in order to facilitate the process of negotiating with creditors.

Picard alleges that Credit Solutions failed to provide the services it was obligated to provide. She contends that by the end of January 2007, she was receiving both phone calls from creditors advising her that she was in default because no payments had been received and letters from lawyers threatening to take immediate legal action if she did not immediately pay her outstanding balances. Picard alleges that her eventual defaulting on her credit card accounts was caused by Credit Solutions's failure to provide the services it promised. After allegedly being unable to get anyone at Credit Solutions to respond to her demands for information about the status of the debt settlement negotiations, Picard states that she rescinded the limited power of attorney on April 18, 2007. According to Picard, her filing a Chapter 7 petition for bankruptcy on May 21, 2007 was the direct result of Credit Solutions's failure to fulfill its contractual and statutory obligations. Picard filed her complaint in this court on August 22, 2007, alleging violations of the Credit Repair Organizations Act ("CROA"), 15 U.S.C. § 1679 et seq., breach of contract,3 and fraud.

Credit Solutions's motion invokes an arbitration clause contained in the text of the customer enrollment package. The arbitration clause provides:

If there is any dispute between the parties arising out of this agreement, the parties agree to submit that dispute to binding arbitration under the auspices of the American Arbitration Association (AAA). If such arbitration is held under the auspices of any other organization, the arbitration will be held in accord with AAA rules to the extent possible. Binding arbitration means that both parties give up the right to a trial by jury and to appeal except for a narrow range of issues that may be appealed under Texas law. Discovery may be limited by the arbitrator.

Def.'s Ex. 4 ¶ 10. The agreement also contains a choice of law and jurisdiction clause providing that:

In the event of any dispute regarding this AGREEMENT including but not limited to service fees and costs. CLIENT and COMPANY agree that venue of resolution shall be in the county and city of Dallas, Texas. Both COMPANY and CLIENT agree that the laws of the State of Texas shall govern any disputes arising from this AGREEMENT.

Def.'s Ex. 4 ¶ 11. Initially, Picard argued that the arbitration clause does not apply because she never signed an agreement of any kind with Credit Solutions. Now, after the audio recording of her phone conversation with Englert was introduced at the evidentiary hearing, she argues that the arbitration clause is not applicable because CROA operates to make the arbitration clause void and because the agreement as a whole is rendered void under the doctrine of fraud in the factum.


The Federal Arbitration Act ("FAA") provides that written agreements to arbitrate a dispute arising out of a transaction involving interstate commerce are "valid, irrevocable, and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract." 9 U.S.C. § 2. The Supreme Court has interpreted § 2 of the FAA as "a congressional declaration of a liberal federal policy favoring arbitration agreements." Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S.Ct. 927, 941, 74 L.Ed.2d 765 (1983). Section 3 of the FAA requires a federal court in which a suit has been brought "upon any issue referable to arbitration under an agreement in writing for such arbitration" to stay the action pending arbitration "upon being satisfied that the issue involved in such suit or proceeding is referable to arbitration under such an agreement." 9 U.S.C. § 3. "Statutorily-created causes of action are no exception to the rule that arbitration agreements should be enforced according to their terms." Cunningham v. Fleetwood Homes, 253 F.3d 611, 617 (11th Cir.2001). While the FAA preempts state law to the extent it treats arbitration agreements...

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